To Quote Donald Trump (oops):
I always question quoting someone as controversial as “The Donald” however in this case: “We are one of the richest energy nations on the planet. There are ships fully loaded with oil - outside our ports – waiting to deliver us oil, and we can’t find a way to let them in. Now why is there $4 gasoline?” The Ben Bernanke – during his press conference was asked directly about rising gas prices, he said that it was due to emerging economy demand. Really Ben, it has nothing to do with your money printing - really? So it’s pure coincidence that gasoline started rising just as the first of the Ben Bernanke’s Quantitative Easing’s began, and has accelerated ever since?
Honestly, as much as Wall Street says people are okay with $4 gas, do those same people really understand the 45 million people on food stamps, or the one out of every six people that are on some form of Government assistance?
Is it ONLY Donald Trump that is asking: “How did we get to this situation? How is it that the single biggest economy, with the single biggest military, has NO energy policy? How is it that Apple can track your every move through your cell phone, satellites can read license plates from space, yet when it comes to something as important to the nation as abundant inexpensive energy, we have NO policy?” To quote ‘The Donald’: “Do you really think that's just an oversight?”
The United States has enough natural gas to supply our energy needs for 150 years, but it's not utilized? How can the Government take over GM (selling cars that need GASOLINE) yet there hasn't been a refinery built in 40 years? How is it that our coasts and sovereign territories are flush with oil, yet we don't touch it, but rather send BILLIONS to Brazil to help them develop their fields so we can buy oil from them?
Well some facts:
- In 1944 the Bretton Woods Agreement pegged the U.S. dollar to gold – at the rate of $35 per ounce – and other currencies were pegged to the dollar. However, in order for the agreement to work – you either needed $35 per ounce gold forever, or you’d have to change the exchange rate as the price of gold changed. In any case – these two elements would absolutely need to move in ‘lock-step’ – and they didn’t.
- What started to happen was that nations would accumulate U.S. Dollars – cash them in for gold at $35 an ounce – and then sell the gold at a higher price on the open market for a profit!
- Fast-forward to 1971, due to the Vietnam War producing large account deficits – President Richard Nixon suddenly “closed the gold window” – stopping the dollar to gold conversion – except on the open market.
- So why would anyone want to use U.S. Dollars – you ask? Well – one reason is the military security that we offer. Secondly the real key to the world has always been energy. So, the U.S. (which had already developed the Middle East oil areas) got the Saudi's to agree to only sell oil based on US dollars in return for security. But what’s to keep the Saudi’s from developing their own fields and purchasing security on an ‘as needed’ basis - nothing is the answer!
- Well what is often overlooked in 1971 is along with ‘closing the gold window’ was President Nixon’s unilateral creation of the EPA. The EPA (along with maintaining many clean air and water standards) – indirectly (or directly) ensures that the Saudi’s would remain the global oil producers going forward and the ‘U.S. dollar’ would remain the global reserve currency by severely limiting any oil exploration or refining that can be accomplished inside the U.S.
- Fast-forward to 2011 – and no one wants the U.S. Dollar anymore. This makes the ‘old deal’ virtually worthless. The good news is once we are removed as the world’s reserve currency we will see a renewed interest in securing and using the oil and natural gas we have on our own shores – which will dramatically reduce the price of energy.
So ‘The Donald’ – in order to reduce the price of gasoline – look no further than your own EPA. And to quote Paul Harvey: “And now you know the rest of the story".
The Market:
Remember the program Fantasy Island – with Tatoo saying: “Boss – de plane, de plane!” A place where people would go to make all their dreams come true! Just this week our own Treasury Secretary told us that everything we’re doing is about a STRONG dollar. Meanwhile – gold is gaining $30 per day – and Silver is touching $50 an ounce. Now the world knows that this ‘strong dollar’ policy is a scam and is ‘honestly’ just playing along until the music stops! This week we saw some of the most interesting attacks on silver that the big cartel could make. With so many of the big banks on the wrong side of the silver trade, they've pulled out the stops – starting with raising the margin requirements TWICE in two days – next June’s expirations will be exciting and we are set up for some wicked movement in the silver pits over the next 3 weeks.
Now as Steve Forbes writes us: What could possibly be the upside to this market now that: (a) we’re within 1,000 points of the 2008 high, (b) the Ben Bernanke is openly concerned with inflation, and (c) the funds into QE3 will either be significantly less, just disguised as less than QE2. Often the method for controlling inflation is raising interest rates – but that’s in an economy that was fueled by jobs and by housing growth. This is a jobless recovery – with underemployment numbers hovering around 17% - and a housing recovery that is non-existent due to the shadow inventory of foreclosures sitting in the 4 to 7 million homes neighborhood. So if the Ben Bernanke keeps interest rates low (in order to satisfy investors and residential home buyers) – he simply fuels inflation. If he raises rates to contain inflation – obviously this further deepens the housing trough and further restricts demand – and subsequent employment. Sadly (and I agree with Steve here) – we could see a ‘finessing’ of the numbers over the next couple of months – i.e. changing the way we report elements such as inflation, CPI and PPI to name a few.
The market is dangerous folks, don't overexpose because when this music stops, the rush for the doors will be incredible. Take care!
Tips:
Our long holds looking like: SLV, NG, AAU, DNN, AVL, SLW and USSIF.
In our short-term holds:
- FRG, QSURD, NGD, PAL, EXK, SVM, SD, NBR, and SQM.
- We’re still talking about how to contract and distribute the iPhone APP – so any thoughts – advice – you may have is more than welcome at this stage.
Watch SLW in the coming weeks as it continues to recover from ‘dip’ that it just experienced. I am keeping an eye on this – and it’s the stock price that will determine if we stay in SLW or go.
On a tip by Dave S. – we’re watching GXG – a basket of Colombian stocks. Colombia is the third-largest oil producer in South America, and now ranks 10th among the exporters of oil to the United States – a breakout above the 23 to 24 range would be appropriate.
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